💰 5 Fact Friday: Bitcoin Halves & Markets Tremble

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Hey Money Maniacs,

Welcome back to another edition of 5 Fact Friday! Here are this week’s biggest stories in the world of money:

1. Bitcoin Halving Hits Today ₿

Get ready, folks! The much-anticipated Bitcoin halving event is set for this afternoon.

For those scratching their heads, here's the scoop: approximately every four years, the reward for mining Bitcoin (and supporting the network) is slashed in half. Hence, the name the halving or the halvening.

These rewards not only incentivize network security, but they also increase the Bitcoin supply. Plus, miners often sell these earnings to cover their operational costs and secure profits, creating pressure on BTC’s price.

Starting around 3:55 PM EST, miners will see their earnings halved from 6.25 to 3.125 BTC per block.

This represents a nearly 94% drop from the initial 50 BTC issued every 10 minutes at Bitcoin's inception.

Why Should You Care?

Historically, halvings have triggered major price rallies in Bitcoin. Here's a quick recap of past performances from halving day to the peak in the following year:

• Halving #1: $13 to $1,152, yielding an 8,672% return

• Halving #2: $664 to $17,760, yielding a 2,575% return

• Halving #3: $9,734 to $67,549, yielding a 594% return

• Halving #4: ~$64,000 to ⁉️

Is This Time Different?

As Bitcoin has grown, each subsequent halving has resulted in lower returns. Following this pattern, we might expect a peak price of around $130,000 next year.

However, several factors suggest this halving could be different:

• Higher interest rates make safer investments more appealing and increase the opportunity cost of holding riskier assets, like BTC.

• Pre-halving rally. Bitcoin’s record high last month may have already factored in the halving effects.

• Global instability. Bitcoin's price fell 7% after Iran’s recent missile attack on Israel. Continued unrest could further impact its performance.

These dynamics have polarized the crypto community.

Some analysts predict a continued bullish market fueled by scarcity, driving prices anywhere from $100,000 to $250,000. Skeptics like J.P. Morgan caution that a "sell the news" effect might deflate prices as low as $42,000.

Bottom Line

Whether you're a seasoned crypto trader or just crypto-curious, this event is a key watch. It could influence Bitcoin's price trajectory and the broader crypto market for months to come.

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2. Stocks Continue Their Sell-Off 📉

Hold onto your wallets, because the markets are taking us on a bumpy ride!

Both the S&P 500 and Nasdaq have suffered five straight days of losses, and the Dow is down in seven of the last ten sessions.

The Wall Street “fear gauge” – the VIX index – rocketed to a six-month high earlier this week. Monday’s peak of 19.6 signals that traders are bracing for more volatility ahead.

Here's why the market's mood has soured:

• Sticky inflation: March's hot CPI print has investors second-guessing the idea of tamed inflation. Plus, it likely pushed the timeline of rate cuts further out.

• The Fed’s tone: Fed Chair Jerome Powell seems to be leaning towards keeping interest rates higher for longer. This stance has put pressure on stocks, especially tech giants, causing significant selloffs.

• Geopolitical gyrations: Yes, it merits saying again. While war can be expansionary in nature, markets hate uncertainty. Rising tensions in the Middle East have added another layer of unease, stoking investors' fears.

As the markets toss and turn, many investors are pausing to reassess their portfolios, seek safer havens, and brace for potential drops.

During these times, it’s crucial to keep a level head and focus on the long haul.

This approach helps to prevent panic selling, especially if we see a sharp correction. Instead, you may even find opportunities where others are overreacting. 

3. U.S. Pulls Chip Production Stateside 🛡️

Funding from the 2022 CHIPS and Science Act is officially flowing.

Over the past two weeks, the Biden administration has agreed to shell out serious cash to ramp up domestic semiconductor production:

• $6.6 billion to Taiwan Semiconductor Manufacturing (TSMC) to expand its chip facilities in Arizona

• $6.4 billion to Samsung to upgrade its manufacturing facility in Austin, Texas, and develop a new hub in Taylor, Texas

• $6.1 billion to Micron Technology to produce advanced memory computer chips in New York and Idaho

Why the government funding?

It's all about securing a homegrown supply chain for chips that power everything from consumer electronics and artificial intelligence to cars and fighter jets.

If there’s one thing the pandemic hammered home, it’s how fragile global supply chains really are. Although we might be willing to import trinkets or textiles, these powerful little components are too important not to control domestically.

Plus, nearly 90% of the world’s most sophisticated chips are currently churned out by TSMC (in Taiwan). So the tension between China and Taiwan isn't just a regional issue – it's a glaring national security concern for the U.S.

That's why shifting chip manufacturing stateside isn’t just about logistics – it's about safeguarding America's tech from global drama and supply snags. However, it does come at a cost.

Reshoring or de-globalization is generally inflationary, as production is shifted away from cheaper locales.

Both sides of the aisle seem to acknowledge the strategic necessity of this particular initiative. But hey, if we keep pushing for “made in the USA” tech, our wallets might just feel the pinch.

Adjusting to these sticker shocks? That’ll be the real test of consumer patriotism.

4. Housing Sees Rising Rates & Falling Starts 😰

Unfortunately for home buyers, home sellers, and pretty much anyone involved in the housing market, the 30-year fixed mortgage rate has climbed back above 7%.

According to the Mortgage Bankers Association, it now sits at 7.13% – the highest level in four months.

But that’s not the only factor adding to the current freeze in the residential real estate market.

March was particularly bleak for new residential construction:

• Building permits fell by 4.3%

• Housing starts plummeted by an alarming 14.7%

• Housing completions also saw a significant drop of nearly 13.5%

This construction downturn may signal a tightening in the supply of new homes, potentially exacerbating the housing shortage. However, month-over-month data can be noisy, making it too early to determine whether this is a one-off anomaly or the start of a worrying trend.

Reflecting on this uncertainty, Christopher Rupkey, Chief Economist at FWDBONDS, commented, “One thing is for certain, and that is home prices are going to be on an upward, more unaffordable trend without more supply.”

Here’s to hoping that homebuilders can ramp up activities in the coming months, bringing much-needed relief and stability to the market.

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5. Asset Classes: Volume 9 – Collectibles 🖼️

Let's explore a less traditional side of investing this week – collectibles. This category spans a range of items including art, trading cards, classic cars, wine, and even sneakers.

But what exactly gives these unique items their value? Two key factors play a critical role: condition and supply (rarity).

Why Collectibles Can Be Valuable Investments

• Diversification: Collectibles can diversify your portfolio, providing a hedge against more traditional investment volatility.

• Fractional investing: Platforms now allow for fractional ownership of expensive collectibles, making entry more accessible and hands-off.

• Downside protection and utility: Many collectibles offer real-world utility and enjoyment, adding value beyond their investment potential.

• Potential for exceptional returns: Collectibles have the potential to outperform traditional markets, given the right conditions of rarity and demand.

Collectibles Also Come With Drawbacks

• Lack of Income: Unlike stocks or bonds, collectibles do not produce income through dividends or interest.

• Illiquidity: Selling collectibles can be challenging and time-consuming, making them less liquid than traditional investments.

• Prevalence of frauds: The collectibles market can be ripe with frauds and counterfeits, requiring investors to be cautious.

• High costs and risks: Collectibles often incur high maintenance, insurance, and transaction fees. Plus, there is always the risk of physical damage impairing their value.

Quick Investing Tips

1. If you're considering diving into collectibles, choose an area that genuinely interests you. This will make the journey of building expertise more enjoyable and rewarding.
   

2. Be vigilant of all data around historical returns. Research the conditions that led to those returns and assess the likelihood of them repeating.
   
   Be particularly cautious of return timeframes. Make sure the data isn’t cherry-picked to boost the appeal of that asset, fund, or platform.
   

3. Lastly, limit your exposure to alternative investments (like collectibles and crypto). Most experts recommend keeping these riskier bets to no more than 10% of your portfolio.
   
   This approach helps ensure that you enjoy the thrill of collecting without overexposing yourself to the unique risks associated with this asset class.

That’s all for today! For more insights, follow me on Instagram, Twitter, and at TheMoneyManiac.com.

Also, I’d love to hear your feedback. So please reply with comments – I read everything.

Until next time,
Daniel

DISCLAIMER: None of this is financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research.